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The Impact of Within and Between Occupational Inequalities on People's Justice Perceptions Towards Their Own Earnings

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The Impact of Within and Between Occupational Inequalities on People's Justice Perceptions Towards Their Own Earnings A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Sauer, Carsten; Valet, Peter; Liebig, Stefan Working Paper The impact of within and between occupational inequalities on people's justice perceptions towards their own earnings SOEPpapers on Multidisciplinary Panel Data Research, No. 567 Provided in Cooperation with: German Institute for Economic Research (DIW Berlin) Suggested Citation: Sauer, Carsten; Valet, Peter; Liebig, Stefan (2013) : The impact of within and between occupational inequalities on people's justice perceptions towards their own earnings, SOEPpapers on Multidisciplinary Panel Data Research, No. 567, Deutsches Institut für Wirtschaftsforschung (DIW), Berlin This Version is available at: http://hdl.handle.net/10419/78241 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. 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Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen die in der dort Content Licence (especially Creative Commons Licences), you genannten Lizenz gewährten Nutzungsrechte. may exercise further usage rights as specified in the indicated licence. www.econstor.eu 567 2013 SOEPpapers on Multidisciplinary Panel Data Research SOEP — The German Socio-Economic Panel Study at DIW Berlin 567-2013 The Impact of Within and Between Occupational Inequalities on People’s Justice Perceptions Towards their Own Earnings Carsten Sauer, Peter Valet, Stefan Liebig SOEPpapers on Multidisciplinary Panel Data Research at DIW Berlin This series presents research findings based either directly on data from the German Socio- Economic Panel Study (SOEP) or using SOEP data as part of an internationally comparable data set (e.g. CNEF, ECHP, LIS, LWS, CHER/PACO). SOEP is a truly multidisciplinary household panel study covering a wide range of social and behavioral sciences: economics, sociology, psychology, survey methodology, econometrics and applied statistics, educational science, political science, public health, behavioral genetics, demography, geography, and sport science. The decision to publish a submission in SOEPpapers is made by a board of editors chosen by the DIW Berlin to represent the wide range of disciplines covered by SOEP. There is no external referee process and papers are either accepted or rejected without revision. Papers appear in this series as works in progress and may also appear elsewhere. They often represent preliminary studies and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A revised version may be requested from the author directly. Any opinions expressed in this series are those of the author(s) and not those of DIW Berlin. Research disseminated by DIW Berlin may include views on public policy issues, but the institute itself takes no institutional policy positions. The SOEPpapers are available at http://www.diw.de/soeppapers Editors: Jürgen Schupp (Sociology) Gert G. Wagner (Social Sciences, Vice Dean DIW Graduate Center) Conchita D’Ambrosio (Public Economics) Denis Gerstorf (Psychology, DIW Research Director) Elke Holst (Gender Studies, DIW Research Director) Frauke Kreuter (Survey Methodology, DIW Research Professor) Martin Kroh (Political Science and Survey Methodology) Frieder R. Lang (Psychology, DIW Research Professor) Henning Lohmann (Sociology, DIW Research Professor) Jörg-Peter Schräpler (Survey Methodology, DIW Research Professor) Thomas Siedler (Empirical Economics) C. Katharina Spieß (Empirical Economics and Educational Science) ISSN: 1864-6689 (online) German Socio-Economic Panel Study (SOEP) DIW Berlin Mohrenstrasse 58 10117 Berlin, Germany Contact: Uta Rahmann | [email protected] The Impact of Within and Between Occupational Inequalities on People’s Justice Perceptions Towards their Own Earnings Carsten Sauer, Peter Valet, and Stefan Liebig Collaborative Research Center (SFB) 882, Bielefeld University Abstract: This paper investigates justice perceptions of employees towards their own earnings. Earnings are decomposed into three components: (1) In returns based on human capital endowments, (2) in returns based on individual residual differences and (3) in returns based on differences between occupations. The legitimacy of these earnings components is measured via the justice assessments of employees. Based on theoretical models from justice research and class theory it is hypothesized that earnings inequality resulting from human capital factors is evaluated as just, whereas residual inequality and occupational inequality are perceived as unjust. The hypotheses are tested by using data from a German longitudinal panel study (SOEP) of the years 2005 to 2011. These data allow studying changes of individual earnings and justice evaluations in a household panel over the time span of six years (with four biennial measurement points). The findings support our hypotheses indicating that losses or gains in earnings which are due to changes in human capital endowments do not affect justice perceptions of own earnings. Losses or gains stemming from changes of a person's earnings position within the occupational group or the position of a person's occupational group within the earnings hierarchy of a society, however, affect justice perceptions remarkably. Thus, we can show that justice evaluations of own earnings do not solely depend on compensation for individual investments but also on residual differences in earnings within and between occupational groups. Keywords: Earnings inequality, fairness of earnings, decomposition of justice evaluations, group identification, panel regression Collaborative Research Center (SFB) 882 – From Heterogeneities to Inequalities, Research Project A6 “The Legitimation of Inequalities – Structural Conditions of Justice Attitudes over the Life-span”, Bielefeld University, Faculty of Sociology, P.O. Box 100131, 33501 Bielefeld, Germany. [email protected], [email protected], [email protected]. 1 1. Introduction Following Mouw and Kalleberg (2010) three types of earnings inequalities can at least be distinguished in modern societies: (1) Inequality due to individual differences in human capital endowments, (2) residual inequality within occupations—the share that is not due to individual differences in human capital, and (3) occupational inequality—differences in earnings between occupations that can for instance be attributed to specific processes of social closure. Studies on the relative proportions of these three components show that human capital characteristics have lost relevance (Gartner and Hinz 2009) while residual factors within occupations (Kim & Sakamoto 2008) and differences between occupations (Mouw and Kalleberg 2010) have become more important for explaining earnings inequalities over the last twenty years. Against this background the question of the present paper is whether these components of earnings inequalities affect employees’ perceptions of justice towards their own earnings, or in other words we ask if individuals also take earnings inequalities that are not due to individual investments into account when they evaluate the fairness of their own earnings. The most prominent justice theories in social psychology (equity theory by Adams 1965; Homans 1961) and economics (fair wage-effort hypothesis by Akerlof and Yellen 1990) solely focus on micro level processes that ignore the embeddedness of actors in the social structure. The general assumption of these approaches is that employees evaluate the fairness of their own earnings by comparing their individual efforts and rewards. Higher individual productivity or more human capital, thus, should lead to higher earnings (Adams 1965; Homans 1961; Walster, Walster, and Berscheid 1978). As there are no absolute returns for human capital, productivity or effort, employees have to assess the justice of their own earnings by comparing their own effort-reward ratio to the effort-reward ratio of others. Experiments referring to the concept of other regarding preferences (e.g., Bolton and Ockenfels 2000; Fehr and Schmidt 1999) also show that individual utility does not only depend on the absolute amount of own rewards but also on the rewards of other individuals. Hence, comparison processes are a fundamental part of the micro model of justice evaluations. The theories, nevertheless, give no hints with whom employees compare themselves, or in other words, what their reference standards are. A theory that accounts for the structural embeddedness of individuals is the theory of relative deprivation by distinguishing individual and fraternal comparison processes. Accordingly, it is not only the individual's relative position within a group which is relevant for justice evaluations but also the
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